Accentuate The Positive

US Economy and Globalization Part 1 of 17

Recent Developments in the U.S. Credit Markets

You are all well aware of the events that began to rattle the credit markets in August. Indeed, the media and analyst coverage of the market turbulence Apogee has been so extensive that you would have had to have gotten lost on the walking tour around Ayers Rock last July and just now found your way back to civilization to be unaware of subprime mortgages, collateralized debt obligations (CDOs), structured investment vehicles (SIVs) and the write-downs taken by several leading financial institutions. The disruptions to the orderly functioning of the financial markets have been significant, and the Fed and other central banks around the world have acted to keep those markets functioning. Beyond the troubles in financial markets, we have had an otherwise healthy economy in the U.S., with, thus far, the only other significant signs of weakening coming from continual corrections in the housing market.

The Federal Reserve took action in mid-August, first lowering the discount rate by a half percentage point at a specially convened session of the FOMC, making clear we, like all learned central bankers Trading for Beginners, had read Walter Bagehot. Then, at our regular September meeting, we cut the federal funds rate by a half percentage point and the discount rate by the same amount.

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